I have a log file which has me searching for needles in this haystack, and I'm using Sublime Text to help. I can identify many lines which have useless info, and I can search for ^.+USELESS_ENTRY_TEXT.+$, find all, and hit backspace to delete the text without deleting the lines... so far so good. [I'm clearing useless lines without deleting them so that I can retain original line numbering.]

I would like to fold/compress the empty lines such that I see only non-empty lines (or at most a single blank line for each group of them)... is this possible?

Once you've "found all", just hit "fold" and they'll all fold. You could even hit shift+left first to select the preceding newlines so the fold markers show up on the previous lines instead of taking up a line of their own.